Reconsider Renting - West Columbia, SC

For as long as I can remember, homeownership has been a home run on the American Dream scorecard.

When I graduated from college, my grandmother gave me two choices: live
with her or buy a home. In her mind, to rent meant I was a failure
financially.

“When you rent, you get nothing for your money,” Big Mama would lecture.

Since I didn’t have enough money saved for a home, I lived with my
grandmother, who had been my guardian since I was 4. I hated that year
of ridiculous rules. No shoes under the bed. Don’t turn the television
knob to the left, only to the right (this was before remote controls).
And Big Mama fretted I would be late for work, so she would wake me at 6
a.m. for a shift that didn’t start until 10 a.m.

After a year of this, I decided I had to move. But I still didn’t have enough money saved to buy a home. So I rented.

Every time I called my grandmother, she would berate me about renting.
By the end of my lease, I had saved enough to buy a condo, thanks to a
first-time homebuying program. I’ve never rented since.

I tell you this story for two reasons. I understand where my grandmother
was coming from. Owning a home was the only way she knew of creating
wealth for herself and our family. She didn’t trust investing in the
stock market. I joke that the only bond she ever owned was the adhesive
for her dentures.

However, in the 2000s, the benefit of homeownership became twisted and
too many people were persuaded to pay insane prices and take out
unsustainable mortgages in the quest to fulfill the American Dream.

Then the housing crisis smacked people back to common sense.

I’ve never been supportive of stigmatizing renters as financial
failures. Although it’s true that homeownership has been the path to
prosperity for most American families, it’s not the only path. If you
buy a home before you are economically ready, it can drag you down
financially. As we saw with the drop in housing prices, you can be left
without a home and your savings.

A just-released study by HelloWallet, a company that provides online
financial help as an employer-provided benefit, puts the debate of
homebuying versus renting in perspective. If the cost of renting is less
than that of owning a home and you save well, you can accumulate just
as much wealth as homeowners do, the study contends.

“Buying a home is akin to a rite of passage, simply something people do
when they can, regardless of their circumstances or market conditions,”
Aron Szapiro, a consumer finance expert for HelloWallet, writes.

From 2005 to 2012, all home prices collapsed by 42 percent, Szapiro calculated using Case-Shiller housing data.

So, the question HelloWallet set out to answer was this: Could renters
build more net wealth than homebuyers, while taking on much less risk,
by forgoing homeownership and investing the yearly savings from renting
in a tax-deferred retirement plan?

They could indeed, the study concluded.

“Over half of current homeowners, or over 40 million households,
purchased their homes during time periods when average homebuyers would
have been better off renting and investing,” Szapiro noted.

Of course, the key is that renters need to have the discipline to invest the savings they get from renting.

HelloWallet listed a number of findings in its study, but two stood out for me:

Be careful about the bias built into “buy-or-rent” calculators. Many
of the free online tools that are supposed to help determine if buying a
home is right for you are heavily biased toward homeownership, the
report points out. The calculators often compare homeownership to saving
in an interest-bearing bank account earning low returns. “Since homes
are a risky asset, an alternative investment should also present some
risk, such as an investment in a mix of stocks and bonds aimed at
building long-term wealth for retirement,” Szapiro says.

Don’t overestimate the tax advantage of homeownership. An
overwhelming majority of homebuyers — 80 percent — listed the federal
mortgage deduction and other tax benefits as a reason to buy rather than
to rent. Yet more than half of homeowners with mortgages don’t even
take the deduction because they don’t itemize their federal tax returns.
“We find that federal tax benefits for homeownership go largely to
high-income families in high-cost areas, and even for these families,
the benefit is fleeting,” Szapiro says.

For me, the take-away from the report is that buying a home is not a
no-brainer. It never was. There’s much to consider and the old rules of
thumb aren’t always true, including assuming that renting is a detriment
to wealth-building.